SLDP - Solid Power Will Be Overwhelmed By The Competition

2023-10-19 08:34:19 ET

Summary

• Solid Power, a company with advanced battery technology, is facing challenges in the competitive field of solid-state batteries.
• The company is underfunded and lacks a technological advantage compared to larger battery and automotive companies.
• Solid Power's potential customers, Ford and BMW, have alternative suppliers and may not continue their partnerships, putting the company at risk.

Solid Power Inc. (SLDP) appears to be in a tight spot. In 2012, when the founders spun Solid Power out of the University of Boulder Colorado, it seemed to have a unique disruptive technology that would forever change the automotive world. Solid Power expected a first-mover advantage and an open field to make billions of dollars from its advanced battery technology.

Eleven years later, things look very different. SLDP is still not at the commercial stage, and it now looks more like a small player in a big field, underfunded many years from commercialization, short on potential customers, and without any technological advantage.

There has been much hype around solid-state batteries (SSBs). They offer significant potential advantages over the current Lithium-ion batteries used in EVs with a promised more extended range, improved safety profile, and reduced charge time.

The technology is not universally accepted; many believe that a solid-state battery is more than ten years away and that a hybrid solution may provide many advantages far earlier and at a competitive price.

The Main Players

Of all the disruptive fields I investigate, this is now the most competitive, with multiple well-funded players all seeking the same result. In my view, the competitive situation limits the chance of success. The following list is not exhaustive but shows the competitive field as I see it.

SLDP is now in competition with the world's largest Battery companies and the world's largest Automotive companies, plus a government-led initiative in Japan linking together its industrial might as well as Chinese conglomerates and a host of other start-ups.

SLDP will not get a first-mover advantage, will likely not have a significant technological advantage, and will never have the cash reserves of its competitors.

SLDP Potential Customers

The CEO did say in the Q2 call that they had been supplying powder to potential customers. It isn't easy to speculate who they might be.

The options are limited in the EV market. Solid Power has Ford Motor Company ( F ) and BMW (BMWYY) signed up to work on Joint ventures. This remains the big bright spot for SLDP; if they can capture the majority of the business of these two companies, it would be enough to make SLDP a profitable operation.

All of the other major EV companies have either signed up with an alternative supplier or have begun the development of their own products.

A few large-scale suppliers dominate The EV battery industry, with CATL and Panasonic (PCRFY) being the largest. Both are developing solid-state batteries and appear closer to commercialization than Solid Power. Without a change to the industry dynamics or a significant technological advantage for Solid Power becoming apparent, it isn't easy to see how they will add to BMW and Ford in this market.

Solid Power And Ford

Ford is an investor and supporter of Solid Power and has previously said it expects to begin producing solid batteries by 2030. In the Q2 earnings call, the new SLDP CEO noted that the JV with Ford had been extended. Ford has a second JV with SK On, a South Korean battery company. Earlier this year, SK On announced a breakthrough in SSB technology. SK On claims to have developed a new oxide-based electrolyte that improves energy density by 70%, and this chemistry is more stable under challenging environments than competitive products.

Solid Power's problem is that they were hoping to provide electrolyte to Ford. If Ford's other partner can produce a better electrolyte earlier than Solid can, it would put the potential of the Ford tie-up at risk.

These so-called game-changing discoveries are commonplace in this area. In February GM said its China subsidiary had developed a game-changing high power solid state battery

Solid Power And BMW

In January this year, BMW announced that it expects to start testing cells from Solid Power in 2023 and is preparing to build a prototype line in its cell manufacturing center to test solid-state batteries. A prototype car is due from BMW by 2025; commercial products are not expected before 2030.

BMW currently has major supply orders with CATL and EVE energy and announced it will rely on them for batteries from 2025. Eve is working with StoreDot, an Israeli start-up that has produced extremely fast-charging high-density hybrid solid-state batteries. StoreDot has said that actual Solid-state batteries are more than a decade away from commercialization.

Both of BMW's leading battery suppliers have developed hybrid batteries that appear to fulfill the promise of solid-state batteries and will be used in BMW cars from 2025. It may well be that BMW decides to stick with their current suppliers as the potential improvements Solid Power offers become diminished by the incremental improvement already available.

If BMW or Ford move away from Solid Power, I think it would be the end for Solid Power, and both of them have alternative suppliers they are working with

Solid Power Forecasts

Solid Power appointed a new CEO in June this year, and in August, he delivered the Q2 2023 earnings call . He summarised the Solid Power strategic plan, highlighting some of the benefits of its approach. It is asset-light, not intending to manufacture batteries but will make solid powder electrolyte and supply it to existing battery companies. SLDP now has a small production line in operation, although they are still waiting for some machinery to arrive and are progressing towards delivering A samples in 2023. SLDP is working on its second-generation powder.

The Timeline

If Solid Power delivers a successful A sample product in 2023, it will be tested under the German Association of Automotive Industry guidelines and is unlikely to have passed all of its testing before 2028 at the earliest; this would fit in with BMW's stated time frame of 2030 for vehicle production.

The CEO suggested that it will be another 2 years before they have any supply agreements in place. He also addressed previous manufacturing quality problems when he said

Back last fall, we experienced yield challenges scaling our 20-amp power production. Since then, we have worked closely with BMW's on-site team, invested in quality assurance equipment and made key design changes to improve manufacturability. These changes allow the team to greatly improve our yields. I'm pleased to report that so far the team has translated this strong performance to the EV line.

It has been suggested that the first delivery to BMW was a failure and that is when BMW became more pro-actively involved, but I could not find any corroboration of this.

At the end of the call, only one analyst asked questions; this is a poor sign suggesting that Wall Street is not invested in the Solid Power story. The CEO said earlier in the call that they will improve their investor relationship team and develop better marketing practices to address the perceived lack of interest from Wall Street. I didn't see that improvement in the question and answer section. The only analyst asked two questions: 1. What was the feedback from potential customers about the supplied electrolyte? 2. He wanted more color on the expansion plans in Korea. The new CEO batted these questions away without actually answering them.

Other Auto Manufacturers

The timeline for deploying Solid State batteries gleaned from press releases is as follows.

NIO has recently applied for a license to put SSB batteries in 11 vehicles; it is the second time NIO has made the application. It quoted 2023 as the start date the first time, but that did not materialize. The Nio subsidiary WeLion has been developing hybrid polymer batteries; they are not true SSBs but may offer some advantages; they are more of an improvement to current tech rather than the jump to the next one.

One prominent name is missing: Tesla ( TSLA ), the world's leading electric passenger vehicle manufacturer, has not yet announced any developments in SSBs. Tesla is currently developing the next generation of Lithium-ion batteries. Musk is said not to believe in the technology and believes it will prove too expensive and too difficult to manufacture at scale. CATL, the Chinese company, is a long-term supplier for Tesla and is also pursuing a hybrid approach to SSB technology. Tesla is also investigating the fast charging product from StoreDot. I would expect Tesla to move to a new battery tech from its current suppliers when it is a proven financially viable prospect.

SLDP Financials

Using the forward guidance given in the Q2 earnings call and the results for Q2, I updated my mathematical model to provide a projection for 2023 as follows.

At the end of 2022, Solid Power had $328 million in current assets, implying they have enough cash for two years if results continue to arrive more or less as forecast. The CFO addressed this in the earnings call, saying that he thought they would have enough cash to last into the late 2020s "if we are successful in attaining various grant funding available or project finance, which we are aggressively pursuing."

The model forecast for the longer term is as follows.

Despite growing revenue, cash flow remains negative beyond the forecast range of the model. Currently, the model has never developed a positive fair value, and as it does not account for the grant income the CFO refers to, it has the company running out of cash in 2026.

Conclusion

So far, despite huge investments, no one has managed to produce Solid-State batteries on a commercial scale. There is some evidence that a true commercial SSB is still ten years away and that hybrid solid/liquid batteries will be the next development in battery tech.

Competition in this area has become intense; Solid Power is running short of cash is many years from commercialization and two years from getting its first supply contract.

The two big potential customers currently signed up to Solid Power have alternatives they could go with, and as breakthroughs are announced, the technological ground is constantly shifting.

I will not invest in Solid Power but do not recommend a short position in this stock.

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